Information Theory

Notes toward a new economics

Why in the world do we need yet another “new” economics? Jamming the libraries and the bookstores of the world are avatars of what must be every variation on the great themes of market and managerial economics. Scores of Nobel Prizes have been awarded for various nugatory refinements of the prevailing ideas.

All these schemes, however, fail to answer the key questions about any economic theory, which were posed by Irving Kristol nearly 35 years ago. Can the theory provide a moral or “transcendental” justification for its results, so that it is politically acceptable? And can it explain growth and creativity?

Kristol was cofounder and editor first of Encounter and then of the Public Interest, two of the world’s most eminent and influential publications, which had served to give me an education after four years at Harvard failed. I made reverent visits to Kristol’s luminous lair on Central Park South in Manhattan, where he held forth with his awesomely learned wife Gertrude Himmelfarb. His monthly columns in the Wall Street Journal were the most elegant and erudite ever to appear in those commercially oriented pages. Among all the supporters of supply side economics, he was the most intellectually prestigious, giving a sheen of respectable cover to untutored cohorts like me and Jude Wanniski.

By the late 1970s, Kristol was the so-called Godfather of neoconservatism, not only reigning at the top of a speculative organizational chart spread across a centerfold of Esquire but also ruling a domain of mind that reached to every aspect of the culture. Almost alone among analysts of capitalism, he grasped the centrality of the sciences—from Newtonian physics to Darwinian biology to behavioral psychology—in shaping, informing, and even stultifying economic models. Since occasionally “editing” his column at the New Leader magazine in the mid-1960s (it was always impeccable) I had been among his most devout disciples. When he issued orders, I tended to jump to attention.

Writing Wealth and Poverty 35 years ago, as in launching Knowledge and Power this season, I was consciously picking up a gauntlet from Kristol. In all his works, he fused political, economic, and religious concerns in a critique not merely of government overreach but of all modernist culture. The adversary was not merely excessive tax rates and regulation but nihilism and anomie, “a melting away of established principles of authority” in a “spiritual crisis of modernity.”

Wealth and Poverty offered an extended conversation with Kristol on these themes. But it also expressed a note of callow rebellion. In my view, in March 1978 just as I was buckling down to write my book, Kristol had stumbled. In Two Cheers for Capitalism, he had begrudged our system a full threefold ovation and thus had fallen short of my standards of contrarian optimism. In a critical article in National Review entitled “Why I Am Not a Neo-Conservative,” I wrote—with patricidal panache—“If I am found at the bottom of the East River weighed down by 15 annual volumes of the Public Interest and still able to utter no more than two cheers for capitalism, you will know who did it.”

Kristol had peered into the philosophical morass of the existing theory of capitalism and found a free market competition among barbarians. They were moved by a calculus of simple self-interest and apparently governed by no moral code. In a democratic society, he declared, no such system can ultimately survive.

Impolite and even risqué was Kristol’s public exposé of the moral nudity of capitalism. Since the days of Adam Smith, the entire economics profession had put a self-interested agent, a homo economicus appraising price signals and calculating his own utilitarian advantage, at the center of their models of a capitalist economy. Like Smith himself, most of them have assumed a moral order. But they had provided no grounds to expect that such a moral order would naturally emerge in their system. It was not their department. Some of them harbored a secret relish for the image of the capitalist entrepreneur engaged in a swashbuckling war of all against all.

More ambitious theories based the model on behavioral psychology. Generalized as a hedonic pleasure-seeker, avoiding pain and pursuing gratification in a Skinner-box scheme of stimulus and response, economic man became a mere manifestation of evolution. A function of his physical environment, he became a figment of statistical aggregates. As Kristol put it, “In such a blind and accidental arithmetic, the sum floats free of the addenda, and its legitimacy is infinitely questionable.”